RBA warns high dollar may slow growth

Posted - August 03 201700:09

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RBA warns high dollar may slow growth

Despite being under pressure from tepid economic growth, weak inflation and a surging Australian dollar, the Reserve Bank has left interest rates unchanged at its August board meeting. Over the next couple of years, the central forecast is for the economy to grow at an annual rate of around 3 per cent.

Dr Oliver said it's unlikely there will be a change in Australian interest rates by the RBA because "the bank's read on the economy is too mixed to do anything".

He expects the RBA to begin hiking in the March quarter of next year. However, wage growth remains low and this is likely to continue for a while yet, the bank added.

Analysts will also be adjusting forecast medium-term currency rates in their discounted stock valuation models that means US dollar earners like Woodside Petroleum Limited (ASX: WPL), CSL Limited (ASX: CSL) Amcor Limited (ASX: AMC) and QBE Insurance Group Ltd (ASX: QBE) are all coming under valuation pressure. The headline PMI signalled a growth acceleration for the first time in three months during July, as new order intakes were boosted by a near survey-record increase in new export business.

The central bank has supported regulators' moves to strengthen home-lending standards and prevent the use of interest-only loans by owner -tenants and investors.

While it has been many months since the RBA said anything about the dollar in its policy statement, it has repeatedly warned in other statements that a stronger currency would push down employment and make it harder for the economy to recover from the global financial crisis.

The pair recently failed near the 76.4% Fib retracement level of the last decline from the 0.8065 high to 0.7936 low.

In its July statement it said that "indicators of the labour market remain mixed" with forward-looking indicators pointing to "continued growth in employment over the period ahead".

"The Australian dollar has appreciated recently, partly reflecting a lower USA dollar". In other markets, housing prices were declining.

The bank noted that a transition to lower levels of mining investment in Australia following the metal prices boom that peaked in 2012 was almost complete. Housing debt has out passed the slow growth in incomes.

But the RBA still faces a problem with low rates and property.

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